Previous articles on this site have detailed how Big Oil stocks like ExxonMobil (NYSE: XOM), Occidental Petroleum (NYSE: OXY), and Chevron (NYSE: CVX) are ideal candidates for writing covered call options.
Add Sherwin Williams (NYSE: SHW) to that list.
Sherwin Williams makes paints, coatings, and other products related to housing and other sectors. Like other stocks in that industry, it has rebounded strongly from The Great Recession. For the last year of market action, Sherwin Williams has risen in double digits (chart below).
For 2014, it is up nearly 11 percent.
But it has been sputtering in recent market action, down for both the last week and the last quarter. That is what makes it ideal for writing covered call options, the selling of options to buy the stock by those who own the shares of a publicly traded company. There are three basic ways to prosper from selling covered call options: the actual selling of the option, the collecting of any dividends paid during the length of the option, and the capital gains from the sale of the underlying shares of the stock if the option is exercised.
The last is the most compelling.
According to Dr. Joseph Louro, an options expert who is head of Investview (OTC: INVU), an investor education and financial technology firm, the great majority of options are never exercised.
Add to this is that Sherwin Williams is a “Dividend Aristocrat.” That means that it has increased the amount of its dividend annually for at least the past 25 years. In other words, shareholders get paid just for owning the stock as the dividend amount rises each year.
That adds to the appeal of writing covered call options on Sherwin Williams.
Writing covered call options is a low risk way to profit. As Dr. Louro pointed out, few are ever exercised. For a company like Sherwin Williams with an increasing dividend, that makes the strategy even more lucrative.